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Influenced by the US July CPI data, the market saw a spike and then a pullback on Wednesday, August 12, with intense competition between bulls and bears around the $4,400 per ounce level. Looking ahead to the final two trading days of the week, the market will also face US PPI and retail sales data. Although gold's bullish pattern has been confirmed after breaking through $4,244, the question of whether the bullish logic can form a closed loop still awaits data validation.
On the fundamental side, data released on August 12 showed that the US July CPI annual rate came in at 3.4% (prior 3.5%), the monthly rate at 0.1%, and the core CPI year-over-year increase fell to 2.5% (prior 2.6%). Both overall and sub-items were in line with expectations, with a 1.5% month-over-month decline in energy prices being the main driver of the cooling. Following the data, the US Dollar Index briefly plunged to around 99.6, the 2-year Treasury yield fell about 4 basis points to 4.18%, and the market quickly lowered the probability of a September rate hike.
However, the market faces a dual test today (August 13) from the US July PPI and last week's (through August 8) initial jobless claims, which are key validations of rate hike expectations following the CPI report. The current market consensus expects the US July PPI annual rate to be 4.9% (prior 5.5%) and the monthly rate to be 0.2% (prior -0.3%). If the PPI continues to cool, it will resonate with the CPI to form a "dual mild inflation" scenario, potentially further reducing the probability of a September rate hike and supporting gold prices to continue their upward move. Conversely, if the PPI rebounds unexpectedly, it could restart the narrative of "mild CPI but no cost relief for businesses," leading to renewed rate hike pricing.
Additionally, if last week's initial jobless claims rise above 210,000, combined with a mild PPI, it could strengthen the most favorable combination for gold: "economic slowdown plus cooling inflation."
Furthermore, Federal Reserve officials are scheduled to speak this evening. Given that both officials have recently maintained a hawkish stance, if they reiterate the need for rate hikes due to inflation risks, it could partially offset the positive data impact. However, if their hawkish tone softens compared to previous statements, it could open the upside space for gold prices.
It is worth noting that beyond the inflation data tests, the market will also face the July retail sales and the August University of Michigan inflation expectations on Friday. The performance of these two data points will likely determine whether gold prices can firmly hold above the $4,400 per ounce level.
On the technical side, leveraging the positive US July CPI data, gold prices broke through and successfully stood above the key weekly pivot point of $4,244 per ounce, confirming the bullish pattern. If today's PPI data and initial jobless claims remain moderate, gold prices are expected to target the first resistance level of $4,470 per ounce, based on the support at $4,244. After breaking through that level, gold prices could look towards the second resistance level of $4,597 per ounce. However, if the PPI rebounds unexpectedly, initial jobless claims come in low, and Fed officials sound hawkish, gold may retreat to test the $4,244 per ounce level or even the first support level of $4,116 per ounce.
Additionally, on the 5-hour chart, the MACD histogram has turned negative, and the RSI is high at 68.39, indicating clear signs of overheating and a risk of a false breakout. Each rally could trigger profit-taking that leads to selling pressure. Caution is advised for chasing highs until the strong resistance level of $4,470 per ounce is effectively breached.
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